Spectrum Auctions Program

Federal Communications Commission

(Effective Fiscal 2017)

**UNITED STATES STANDARD GENERAL LEDGER ADVISORY DIVISION**

**GOVERNMENT-WIDE ACCOUNTING**

**BUREAU OF THE FISCAL SERVICE**

**U.S. DEPARTMENT OF THE TREASURY**

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1

**Background**

Congress appointed the Federal Communications Commission (FCC or Commission) as the designated federal agency to conduct auctions of spectrum rights for commercial use.  This auctions process is commonly known as the Standard Auction.  The financial portion of the Standard Auction begins with qualified bidders depositing Upfront Payments into a commercial bank (The Commission uses the Federal Reserve Bank of New York (FRBNY) for its most recent auction and is currently working with Treasury and Congress to adopt legislation that would require Upfront Payments to be deposited directly with Treasury), as instructed in the specific auction’s Public Notice (PN).  A deposit liability is recognized for the Upfront Payment in a non-Treasury account maintained by the FCC Deposit Fund with the Treasury Account Symbol (TAS) 027X6725 with internal fund code TDA.  After auction close, a PN listing the winning bidders is issued and non-winning bidders are refunded their Upfront Payments.  Next, within 45 days of the close of the auctions, the winning bidders’ Upfront Payments are moved from the non-Treasury account to Treasury and remain in TAS 027X6725 (internal fund code AUC).  The winning bidders will have a specific number of days after auction close (10 to 20 days) to pay any additional downs (difference between the winning bid amount and the Upfront Payment amount) to cover their winning bids.  These additional downs made by the winning bidders are deposited directly into the Deposit Fund TAS 027X6725 (internal fund code AUC).  In Standard Auctions, earned revenue is not recognized until certain conditions are met by the winning bidders and a “Prepared to Grant” or “Grant” PN is issued by the Commission.  Although the majority of the licenses auctioned are granted within one to two years after the auction close, this process may take longer.  The FCC transfers a portion of the auctions revenue as approved by Congress to the Salary and Expense (S&E) General Fund TAS 027X0100 (internal fund code X54) from the Deposit Fund TAS 027X6725 (internal fund code AUC) to cover the administrative costs for developing and implementing the competitive auctions program (47 U.S.C. § 309).  Depending on the auction or the Public Law mandating the auction, the remaining earned revenue will be transferred to various federal entities as required by the Public Law for specific or general government use.  In addition, with approval from the Office of Management and Budget (OMB), FCC retains the approved portion of earned revenue to fund the auctions program in subsequent years when there are no auctions and/or no auctions revenue.  This amount is retained in the Deposit Fund TAS 027X6725 (internal fund code AUC) until Congress approves its use through the Commission’s budget process.

The Middle Class Tax Relief and Job Creation Act of 2012 (Public Law 112-96) created a new process for redistributing spectrum usage rights by creating the “Incentive Auctions.”  This new auction process is made up of two types of interdependent auctions:  the Forward Auction and the Reverse Auction. 

The Forward Auction functions similar to the Standard Auction where qualified parties bid on the spectrum usage rights offered in the Reverse Auction.  In order to participate in the Forward Auction, qualified bidders are required to deposit Upfront Payments in a non-Treasury account maintained by the FCC.  When the Forward Auction concludes, a PN listing the winning bidders is issued and non-winning bidders are refunded their Upfront Payments.  Next, within 45 days of the close of the auction, the winning bidders’ Upfront Payments are transferred from the non-Treasury account Deposit Fund TAS 027X6725 (internal fund code TDA) to TAS 027X6725 (internal fund code AUC) and categorized as deferred revenue.  The winning bidders have a specific number of days after the close of the auction (10 to 20 days) to pay any additional downs (difference between the winning bid amount and the Upfront Payment amount) to cover their winning bids.  These additional downs are deposited directly into the TAS 027X6725 (internal fund code AUC).  As with the Standard Auction, the earned revenue from the Forward Auction is not recognized until a “Prepared to Grant” or “Grant” PN is issued.  **The earned revenue from the Forward Auction is used to pay the following parties: (1) the winning TV Broadcasters from the Reverse Auction; (2) the FCC for the administrative costs of conducting the auctions; (3) to reimburse eligible TV Broadcasters for their costs incurred as a result of their spectrum being relocated and repacked; and (4) the Public Safety Trust Fund,the General Fund of the U.S. Government, or other party directed by the Act or Law.**

The Reverse Auction is the mechanism by which existing television Broadcasters are able to bid on the lowest price that they are willing to accept to relinquish some or all of their spectrum usage rights.  The spectrum from the Reverse Auction is what is being repackaged and auctioned off in the Forward Auction.  When the Reverse Auction closes it does not trigger any financial transactions.  The Reverse Auction winning bidders are paid from the proceeds earned from the Forward Auction.  Multiple “Prepared to Grant” or “Grant” PN’s will be issued which list the licenses granted from the Forward Auction.  Based on the earned revenue recorded when the licenses are granted, the FCC will issue “Ready to Pay”, PN’s listing the individual Broadcasters to be paid from the Reverse Auction and record a corresponding liability.

The purpose of this accounting scenario is to document the financial transactions recorded in the various FCC TAS’ as FCC’s auctions program process is conducted and completed as well as to illustrate their impact on the financial statements of the Federal Government.

FASAB SFFAS 7: Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting states in paragraph 278 that proceeds from the auction of radio spectrum are exchange revenues. It further states in paragraph 279 that this exchange revenue shall be accounted for as custodial activity.  It has been further agreed between the Office of Management and Budget, the Federal Communications Commission, and the Department of Treasury, all auction proceeds shall be held in a deposit fund. Deposit funds generally do not record custodial activity. Sometimes it can take several years for the payment of these funds. It was agreed these collections should have no budgetary effect while they are held by FCC before being paid to the rightful owners. 

**Key Items**

1.  Reverse Auction Winning Bidders

· When the Reverse Auction ends, the FCC will not record a financial transaction at the time the “Closing and Channel Reassignment”, PN is issued.  This PN lists the winning bidders from the Reverse and Forward Auctions.  A liability is not recorded at this time for the Reverse Auction winning bidders, because the FCC is not requesting the Broadcasters to move off of their spectrum until the respective licenses are granted in the Forward Auction.  Additionally, the funds from the Forward Auctions are not earned and available until the licenses are granted via a “Prepared to Grant” or “Grant” PN.     

· The liability to the Reverse Auction Winning Bidders will be recorded in multiple tranches as licenses from the Forward Auction are granted.  The “Ready to Pay”, PNs for each tranche will include the amount of the liability to be recognized by the FCC.  

· Disbursements to the Reverse Auction Winning Bidders will be paid directly from Deposit Fund TAS 027X6725.  There will be no budgetary transactions related to these disbursements since they will be made from the Forward Auction licenses granted.

· The disbursements will be reported on the Statement of Custodial Liability, under the section titled “Disposition of Collections, line 13. Other Payments.”

2. TV Broadcaster Relocation Fund

· Transactions in the TV Broadcaster Relocation Fund will be recorded as a reimbursement program and treated as a Dedicated Collection for reporting purposes on the FCC’s consolidated financial statements.

· Public Law 112-96 authorizes a maximum of $1.75 Billion of proceeds from the Forward Auction to be transferred to the TV Broadcaster Relocation Fund to reimburse relocation/repackaging costs of eligible TV Broadcasters that are moved to another frequency.  The FCC will initially use its $1 Billion borrowing authority from the Treasury to begin reimbursing costs incurred by those Broadcasters.  Earned revenue from the Forward Auction will be used to repay up to $1 Billion that was borrowed from the Treasury.  An additional $0.75 Billion from the Forward Auction may be used to reimburse eligible Broadcasters.  These amounts are subject to sequestration.

· The initial up to $1 Billion (less the sequestered amount) obligated will be based on approved estimates of all the relocation costs received from the eligible TV Broadcasters.

· Up to an additional $0.75 Billion(less any sequestered amount) may be obligated as funds become available from the licenses granted from the Forward Auction.

**Applicable Federal Communications Commission TAS:**

027X6725 “Deposit Fund” – Internal Fund Codes TDA and AUC[footnoteRef:1] [1: FASAB SFFAS 7: Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting states in paragraph 278 that proceeds from the auction of radio spectrum are exchange revenues. It further states in paragraph 279 that this exchange revenue shall be accounted for as custodial activity.  It has been further agreed between the Office of Management and Budget, the Federal Communications Commission, and the Department of Treasury, all auction proceeds shall be held in a deposit fund. Deposit funds generally do not record custodial activity. Sometimes it can take several years for the payment of these funds. It was agreed these collections should have no budgetary effect while they are held by FCC before being paid to the rightful owners. ] 

027X0100 “No Year Auction Salaries & Expense Account” – Internal Fund Code X54

027X5610 “Special Fund Expenditure Account” – Internal Fund Code TV1

027X5610.001 “Special Fund Receipt Account” – Internal Fund Code TV5

0272474 “General Fund Receipt Account” – Internal Fund Code 012

0273220 “Miscellaneous Receipt Account” – Internal Fund Code 008

**Illustrative Transactions:**

The following transactions include amounts that are for illustrative purposes only and are not representative of the actual amounts from any particular auction.  A summary of the transactions are as follows:

**Forward/ Standard Auction:**

Upfront payments (all bidders)							   600     (Transaction 1)

Refunds to non-winning bidders							  (100)   (Transaction 2)

Upfront payments (winning bidders)						   500	 (Transaction 3b)

Additional downs from winning bidders				  		5,000     (Transactions 4)

Total payments from winning bidders						5,500

Earned revenue from granted licenses of forward auction			 	 (450)    (Transaction 5)

Forward Auction winning bids (to be granted)					5,050

**Note:**The funds from the forward auction will be the primary source to satisfy the Auction costs listed below.

**Reverse Auction:**

Reverse auction winning bids   							3,000    (Closing Public Notice – No Entry)

Reverse auction winning bids paid out 						   200    (Transactions 10a/10b)

Reverse auction winning bids to be paid once licenses are granted		2,800

**TV Broadcaster Reimbursement:**

TV Broadcaster reimbursement definite borrowing authority			1,000    (Transaction 11)

Amount temporarily sequestered in CY						     69    (Transaction 12)

Amount apportioned/ obligated in CY						   931    (Transactions 13a and 13b)

Amount obligated and borrowed from Treasury for immediate needs		   300    (Transactions 13c and 14)

Amount Available to borrow							   631

Amount borrowed and paid to eligible TV Broadcasters				   300    (Transactions 14 and 15)

Amount transferred from deposit fund for repayment of debt                                    (125)   (Transaction 17a)

Amount sequestered on Budg. Auth. associated with approp. receipts		       9     (Transaction 17b) 

Debt outstanding with Treasury							   184 

**Status of Earned Revenue – Forward/ Standard Auction:**

Licenses granted from forward auction in CY					   450     (Transaction 5)

Other revenue from defaults and bid withdrawals				     50	 (Transactions 6 & 7)

Reverse auction winning bids paid out in CY					  (200)   (Transaction 10a/10b)

Transfer to TV Broadcaster Reimbursement Fund for debt repayment in CY	  (125)   (Transaction 18,16,17a, & 19)

Transfer to FCC for administrative costs in CY					  (100)   (Transaction 8 & 9a)

Transfer to other Federal agencies in CY						    (50)   (Transaction 20a)

Transfer to the General fund in CY						    (15)   (Transaction 20b)

Refunds from internal fund code AUC in CY					    (10)	(Transaction 21)

Earned Revenue yet to be transferred out of Deposit Account in CY		       0

**Illustrative Transactions**

**Pre-Closing Transaction**

**Closing Transactions**